What is a Vendor Gifted Deposit?

In certain cases, money saved through negotiation on a property can be used as what's referred to as a "Vendor Gifted Deposit".

Here is an example of how a deal such as this would work: Let's say that you find a property advertised at £90,000. It would certainly value at this price but you manage to negotiate a buying price with the vendor of £75,000. What you now need to do is get the seller to price the property in the sale contract at £90,000 and give you £15,000 back at completion. The net result is that you have a mortgage for £75,000 as you would have always done; the vendor receives £75,000 as they would have always done, however now the bank is satisfied that the need for a deposit has been met.

When organising a Vendor Gifted deposit, there are two rules which must be met. Firstly, not all banks accept this method of providing a deposit - so you must find a bank who does. Secondly, the surveyor must agree that the asking price is fair. In other words, we cannot over-inflate the asking price to make it look like a deposit is there.

At the moment, Bank of Scotland and Woolwich will still accept a 5% vendor gifted deposit, whereas Halifax will still do 10%. It is widely thought that this loophole will be closed in the near future.

Vendor gifted deposit is the easiest way of purchasing a house if you don't have at least a 5% deposit to put down.

If you don't have a deposit then I would recommend using the Vendor Gifted Deposit method. Note though that the banks who allow this will not allow unlimited over payments - just 10% per annum. Therefore you need to reduce the term at the outset if you'd like to get your mortgage finished as early as possible.

Ross Taylor is the author of "Money, Mortgages and Magic" and "The No B.S. Credit Crunch Ready Guide to Buy to Let in 2008". Ross is a successful Financial Adviser specialising in First Time Buyers and Buy to Let. He owns over £2million worth of property in the UK and regularly gives lectures on Financial Planning. To read more by Ross please visit http://www.uncommonadvice.co.uk

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